Friday, January 1, 2010

La Vie en Rose: the Irvine Index

Today, having a look at the National Times (The Sydney Morning Herald online opinion section) I found an article by Jessica Irvine titled "The Irvine Index".

These are some lines in Irvine's article:

"THE American Nobel laureate economist Paul Krugman has called it the 'Big Zero' but Australians have plenty of reasons to celebrate the first decade of the 21st century. (...)"

"However, Australia sailed into its 19th year of uninterrupted growth. So are we better off than we were a decade ago? From a financial point of view, the answer undoubtedly is yes.

"In the noughties the Australian economy burst through the trillion-dollar mark. Average earnings rose from less than $40,000 to more than $62,000, a 58 per cent jump. (...)"

"Australians grew richer in the noughties. Whether we grew happier is harder to quantify."

I, for one, disagree with Irvine's assessment, although she admittedly allows that her comments refer to the financial aspect of growth alone and that there may be disagreement on how "happy" we may be.

These are my comments to Irvine's article (which I'll try to post in the corresponding blog, provided the editors make it open to the public):

Interesting article. However, it could have been much better documented. A simpler way to do this is to consider median (as opposed to average) values, adjusted for inflation.

As I am sure Irvine knows, averages are largely meaningless when it comes to describe total income, wealth and prices. For those interested, have a look at Statistics Every Writer Should Know. Or to my own article "Lies, Damned Lies and Statistics" in this blog.

One of the reasons Krugman is not impressed with the American "Big Zero" is that he's conducted studies on income and wealth distribution in the US. By 1992, for instance, "The Rich, the Right, and the Facts" starts with: "The income gains of the 1980s did go overwhelmingly to the rich."

These studies, limited to the US, have been recently confirmed by Emmanuel Saez (from University of California, Berkeley): the top 1% of Americans reaped 2/3 of income gains in the latest expansion.

What is more, Saez extended his analyses to Australia, suggesting Australia during the late 90s-mid 00s was similar to the US in the 80s and 90s: that is, periods of economic "rationalism" with increasing inequality.

I don't believe similar studies have been conducted in Australia, by Australian academic researchers, although I would suggest "Grappling with Inequality", by John Wicks (St. Vincent de Paul Society, 2005).

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